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Recent federal rulings on COBRA notification requirements

There have been several recently-decided cases concerning employer’s responsibilities for continued health care coverage requirements under the Consolidated Omnibus Reconciliation Act of 1985 (COBRA). These cases generally relate to COBRA’s administrative requirements, principally whether and when there is an obligation to provide a COBRA notice to participants and their dependents. However, the decisions rest on both procedural and equitable results.

In Green v. Baltimore City Board of Commissioners, the court needed to determine whether a reduction in hours worked was a qualifying event entitling a participant to COBRA coverage.

In Sacchi v. Luciani, the court was faced with whether a same-sex spouse had standing to assert a claim even though he was never a beneficiary under his spouse’s group health plan.

In Cole v. Trinity Health Corp., the court needed to use its discretionary authority in determining whether COBRA penalties for failure to provide the COBRA notice should be imposed on the plan sponsor where the participant mistakenly received free coverage.

Finally, in Slipchenko v. Brunel Energy, the court was asked to approve a COBRA class action settlement with a record settlement of $1 million for failing to provide COBRA notices.

Green v. Baltimore City Board of School Commissioners

COBRA provides that continued health care coverage is only available to an individual when group health coverage is lost due to certain specific “qualifying events”. In the case of an employee, a “qualifying event” is (i) voluntary or involuntary termination of employment for reasons other than gross misconduct or (ii) reduction in the number of hours of employment.

In Green v. Baltimore City Board of Commissioners, 2015 WL 302812 (D. Md. Jan. 22, 2015), plaintiffs sued their former employer, the Baltimore City Board of School Commissioners (Board) for failure to provide required COBRA notice when they were suspended without pay but kept on the employee roster with their work hours reduced to zero. Since the plaintiffs remained on the employee roster, they continued to be eligible for coverage under the school system’s health care plan, but they were now responsible for the full premium amount since their work hours were reduced to zero (prior to the reduction in hours, premiums were jointly paid by both employer and employee). Further, the plaintiffs did not receive notification that the Board continued their medical coverage after their suspension, or that the plaintiffs would be responsible for paying the full premium amount.

The plaintiffs argued that the Board violated COBRA notice provisions since a “qualifying event” occurred under COBRA at the time the plaintiffs work hours were reduced to zero and they were required to pay the full premium amount. COBRA imposes a statutory requirement that a plan administrator notify any employee who is covered by its insurance plan of his or her right to continue health insurance coverage for up to eighteen months, within 44 days of a “qualifying event.” The Board argued that there was no COBRA qualifying event because it does not terminate insurance for any of its employees, even if they are working zero hours, until they have ensured that their employees have explicitly sought termination of their benefits, so the Board had no obligation to send the COBRA notice until that termination occurs. The Board also argued that although a reduction of hours occurred, there was no loss of coverage.

While the parties agreed that the Board had an obligation to inform the plaintiffs of their COBRA rights upon the occurrence of a “qualifying event”, the parties disagreed as to what constituted the relevant “qualifying event” as described above.

The Court determined that the Board too narrowly construed “loss of coverage” as going from eligible to ineligible for coverage. The COBRA regulations provide that to lose coverage “means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.

The COBRA regulations further define as a loss of coverage “any increase in the premium of contribution that must be paid by a covered employee . . . for coverage under a group health plan that results from the occurrence of one of the events.” Therefore, the Court granted the plaintiffs’ motion for summary judgment, stating that the plaintiffs suffered a qualifying event on the dates of their suspension, since on such date the plaintiffs were required to pay an increased premium amount, which triggered the Board’s obligations under COBRA.

The Green decision is a reminder to employers that a reduction in hours – not just termination of employment – will result in a COBRA “qualifying event” if there is also a corresponding premium increase.

Sacchi v. Luciani

In Sacchi v. Luciani, 2015 WL 685853 (D.N.J. Feb. 18, 2015), the U.S. District Court for the District of New Jersey held that the same-sex spouse of a former health plan participant did not have standing to assert a claim against the former employer, Meridian Health Systems, Inc. (Meridian), for failure to the provide COBRA notice of continued health coverage because the spouse was never enrolled in Meridian’s health plan and was not named a beneficiary under the plan.

During his employment with Meridian, Stephen Simoni participated in Meridian’s group health plan and, although he was married, Simoni only elected coverage in Meridian’s health plan for himself and not for his spouse, John Sacchi. At the time of Simoni’s termination of employment from Meridian, he was entitled to continued health coverage under COBRA from Meridian, but Sacchi alleged that Meridian failed to send him and Simoni timely COBRA notices and the required Open Enrollment Materials. Without these notices, Simoni was unable to continue his coverage under the health plan and add Sacchi as a beneficiary. Sacchi sued for violation of COBRA for deliberate refusal to provide statutory notices. The district court rejected the claim and granted Meridian’s motion to dismiss because Sacchi had no standing to bring suit

“To bring a civil action under ERISA, a plaintiff must have constitutional, prudential and statutory standing.” Id. at *3 (citations omitted). Specifically, a civil action may only be brought under ERISA Section 502(a) (1) by a participant or beneficiary to recover benefits due to him under the terms of the plan, to enforce his rights under the terms of the plan or to clarify his rights to future benefits under the terms of the plan.“The term ‘beneficiary’ means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to benefits thereunder.” Id. (quoting 29 U.S.C. § 1002(8)).

Sacchi alleged that ERISA confers standing because he was “eligible to join the plan,” and, but for Meridian’s conduct, would have been designated as a beneficiary by Simoni. However, the district court of New Jersey rejected this argument and found that Sacchi was not, and had never been, a beneficiary as defined in ERISA because Simoni never named him as a beneficiary under the health plan.

Though courts have frequently enabled individuals to obtain health coverage under COBRA, Sacchi makes clear that COBRA’s procedural requirements apply equally to individuals as well as to plan sponsors. Since Sacchi never participated in the Meridian health plan and was never named as a beneficiary, he was not entitled to COBRA benefits.

Cole v. Trinity Health Corp.

In a recent ruling, the U.S. Court of Appeals for the Eighth Circuit upheld the decision of the U.S.

District Court for the Northern District of Iowa to deny statutory damages to a former employee who did not receive a timely COBRA notice because, notwithstanding the failure to provide such notice, the former employee mistakenly received 11 months of free health coverage.

In Cole v. Trinity Health Corp., 2014 WL 7012371 (8th Cir. 2014), the Eighth Circuit considered the claims of Bonnie Cole, a former employee of Trinity Health Corporation (Trinity), whose employment with Trinity terminated following a period of leave. Cole applied for long-term disability benefits on June 8, not processed and she and her eligible dependents continued to receive medical coverage under the Trinity plan from June 8, 2011 through April 2012. When Trinity discovered the error, the company cut off the health coverage as of May 1, 2012 and sent Cole a COBRA notice. Cole was able to acquire health insurance coverage through her husband’s employer effective June 2012, but had no health care coverage in May 2012 and had incurred medical expenses of $1,307 during that time.

Cole brought suit against Trinity, alleging that Trinity violated COBRA in not timely notifying her of her right to elect COBRA coverage following her termination of employment in 2011. Under COBRA, failure to provide such a notice can result in damages of up to $110 a day from the date of the failure, as well as other relief as a court deems proper.

Rather than focus on COBRA’s administrative procedures, the district court decided not to award Cole relief because she and her family effectively received free health insurance coverage for a substantial period of time and only experienced a one-month gap in health insurance coverage before obtaining coverage under her husband’s employer. The District Court concluded: “The purpose of the civil enforcement provisions of COBRA is, above all, to put plaintiffs in the same position they would have been in but for the violation … Here, because the Coles’ benefit of receiving extended free health care coverage far outweighs their claimed damages from the lack of COBRA notice, the Coles are already in a better position than they would have been in but for the COBRA notice violation.” Moreover, the district court determined that Trinity Health acted in good faith as demonstrated by the fact that the Coles received free health insurance coverage.

On appeal, the Eighth Circuit ruled that the district court’s denial of damages to the Coles did not constitute an abuse of discretion concluding: “We have consistently held that ‘[i]n exercising its discretion to impose statutory damages, a court primarily should consider the prejudice to the plaintiff and the nature of the plan administrator’s conduct.’”

Employers should understand that courts have discretion to impose penalties for failure to comply with COBRA’s statutory requirements. However, at 2011, which should have been considered her date of termination for COBRA eligibility under Trinity’s plan. Due to an administrative error, her termination was least with Cole, some court’s will focus on the equities and make sure that participants are in at least the same position they would have been but for the violation before determining whether to impose any penalties on an employer who acted in good faith and no overall harm was done to the participant.

Slipchenko v. Brunel Energy

A recently-settled class action highlights the importance to employers of complying with their notice obligations under COBRA. In Slipchenko v. Brunel Energy, Inc., 2015 WL 338358 (S.D. Tex. Jan. 23, 2015), the U.S. District Court for the Southern District of Texas approved a record settlement of $1 million in a class action involving claims of violations for failing to provide COBRA notices.

Slipchenko involved claims by former employees of Brunel Energy, Inc. (Brunel), a company in the business of hiring individuals with specialized knowledge to work on temporary projects for its energy industry client companies. When hired to work on a client project, individuals entered into short-term employment contracts with Brunel, which are typically terminated when the project is finished. Each new client project typically required the individual to enter into a new employment contract with Brunel.

During their employment with Brunel, the plaintiffs participated in the Brunel Group Health Plan (the Plan). In 2011, the plaintiffs alleged that Brunel (1) failed to provide them and other similarly situated employees with the initial notice of their right to elect COBRA coverage when they first began participating in the Plan; (2) failed to provide the subsequent notice of their right under COBRA to continue coverage following their termination of employment (based on the argument that this constituted a COBRA qualifying event); (3) failed to offer a premium reduction to eligible individuals as required under the American Recovery and Reinvestment Act of 2009 (ARRA) (which provided for COBRA premium reduction for individuals who experienced involuntary terminations on or before May 31, 2010); and (4) failed to notify employees of their eligibility for premium reduction under ARRA. The district court certified the class action in part because Brunel’s course of conduct was the same for all class members.

After years of procedural steps, the parties reached a settlement of the COBRA and ARRA claims on August 25, 2014, which received final approval from the district court on January 23, 2015. The settlement amount is notable – a total sum of approximately $1 million, inclusive of attorneys’ fees and other legal expenses. As a result of the settlement, class members are expected to recover approximately $5,000 on average, which the plaintiffs have claimed constitutes “the largest average per person recovery in any reported COBRA class action.”

Slipchenko underscores the importance of COBRA compliance, given the potential increased exposure in class action litigations for systemic violations. In an area where compliance is relatively inexpensive and the potential cost of noncompliance (lengthy litigation of a type suitable for class certification) is high, employers are advised to implement sound COBRA compliance procedures, including updating their form COBRA notices and monitoring COBRA notice deadlines and eligibility.